26 Feb Are You On The Trade-in Treadmill?

Following the huge increase in foreclosures across the country, repossessions of vehicles are up 10% nationally over the year before. Most people finance a car based on the monthly payment and to accommodate those borrowers, lenders are now offering car loans as long as SEVEN years!

While the monthly payment might be low, overall this increased time is increasing the total amount you are paying for the vehicle, but also increases the likelihood that you will rolling negative equity in your car into your next car loan. After all, who wants to be paying on a car than is six or seven years old?

The trend is to fall to the car dealers marketing. Trade in your old car and roll the balance of the remaining loan into the new car purchase. Sooner or later, that car payment will grow beyond your ability to continue paying. Remember, with every new car purchase comes the increased costs of operating a new car; increased insurance, increased registration or property taxes, and increased car payments.

Is it really worth several hundred dollars a month to save a few bucks on gasoline for a more fuel efficient car? Or to impress your neighbors with the kinds of car you drive?

When you add up the increased costs, some economists calculate that it is actually more expensive to own and operate a new car than it is to do so with a five year old car. As long as it gets you were you want to go, what difference does it make to drive something new?

The best deals on the car market are vehicles that are three years old or older. A car depreciates at an enormous rate; 20% in the first year alone. Unlike real estate, there really is no way to realize any increased value over time.

By buying a used car and putting more money down, your car payments will be as low or lower than a new car loan that runs for seven years and you have the realistic expectation that you will own your car in a few short years. While I rarely agree with TV commentators, check out this interview from Good Morning America on ABC.